Preparation and marketing are key to selling any business
James sat across from me and told me that, for the past year, he had been working with a business broker to sell his business with little success. He wanted to get out of the business he had built and run for the past 20 years. His business partner had died and left him with a business he no longer had the passion for running. “Dave,” he said, “what can I do to move on with my life?”
James’s dilemma is typical of business owners who have matured beyond their businesses. While the business may have lots of life still in it, the owner doesn’t want to spend his remaining days tied to it. James and I discussed the fact that buyers of businesses are looking for the following.
- A business that is profitable
- A business that does not rely on the owner of the business for all day-to-day operations.
- A business that relies on systems and has operational processes that are documented.
- A business that has recurring revenue.
- A business that has growth potential.
- A business with multiple revenue streams
The great news was that James’s business had many of these things in place. He had a management team that was not always reliant on him, the business was profitable, he had an operations manual, great relationships with his clients and multiple revenue streams.
We talked about the seven different ways James could exit his business.
- Liquidate: James could liquidate his business, sell the assets, and shut down operations.
- Family succession: One of the popular ways for owners to get out of their business is to sell it to the next generation. Unfortunately, the success rate of these business transactions is not as high as one might think.
- Merge with a competitor: While this had some value, there is the risk that the competitor will use this as an opportunity to gain insight into the strategies of the business without buying the company.
- Sell to employees or the management team: This can be a great way to exit your business, especially if the management team has the capacity to buy the business and run it successfully without the owner’s involvement.
- Sell to an investor. Many investors are looking for profitable businesses that can be run remotely. If this is the case with your business, you might have a great exit strategy.
- Sell to a strategic buyer: Like selling to competitors, business owners often look to buy a business to expand their sales or have access to talent. If your business might be a good addition to other businesses, you could have better success in selling.
- Private equity firms: If your business is making over $1 million a year in net profits, there is a chance that you can sell to a private equity firm. These companies look for businesses that will generate a significant return on their investment.
Selling a business can be difficult. While James had a business broker involved in his business sale, the broker had not put much effort into marketing his business. As a result, almost a year later, James had no prospective buyers.
Preparation and marketing are key to selling any business. A good business realtor or broker will spend days, not hours, preparing the marketing materials and researching the valuation. Unfortunately, some agents believe they have done their job by simply getting the listing.
Selling a business is complex and challenging. There are many factors to be aware of including.
- Confidentiality level: In many cases, business owners do not want their customers or most of their staff to know that the business is for sale. In other cases, some owners are happy that their business is up for sale on MLS because they want maximum exposure.
- Timelines: When does your business need to be sold by? If it is urgent, you will need to implement a much more aggressive marketing process. While everyone wants to sell their business quickly, the timeline is typically nine to 12 months after all the due diligence and buyer investigations.
- Preparedness of the business owner: Getting your business in order can take time. Buyers will want to drill down into your financial statements. If these are not current, there will be challenges. If your business is not as profitable as it could be, your valuation will be affected. Having an operation manual and processes documented for all aspects of the business will speed up the process and add value to your business.
After James fired his business broker and hired another, James sold the business within six months and walked away with more money than he thought possible. While this happy ending is not always the case, it worked out for James.
Dave Fuller, MBA, is an award-winning business coach and a partner with Pivotleader Inc.
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